InterDigital announced its 2017 financials yesterday and while they didn’t match last year’s blockbuster performance, the company still saw total income of a little over $530 million. Although that was down from $665.9 million in 2016, its licensing agreement with LG Electronics signed in December helped boost recurring revenues for the fourth quarter to $99.1 million (up from $93.6 million year-on-year).
The drop in the top line left investors unimpressed as the share price dropped below $70 before climbing back towards $74.
In addition to announcing its results, InterDigital highlighted what looks set to be a significant benefit for patent licensing businesses from the new US tax law which was passed in December. As well as seeing a reduction in its corporate tax rate to 21% (from 35%), a significant chunk of the firm’s revenue looks set to be classed as foreign derived intangible income which will be subject to an effective tax rate of 13.1%.
On a call with analysts, InterDigital’s CFO Rich Brezski explained that the full impact of the change is still to become clear, but he stressed that: “We currently expect a significant portion of our income will qualify for this low rate.” You can read more about the new provision here.
The tax change should provide a significant boost to licensing businesses that are already grappling with a new accounting provision which changes how they recognise revenue. The new regulation, known as ASC 606, means that more revenue from licensing deals will have to be recognised upfront rather than over the course of a licence.
According to InterDigital’s guidance for the current quarter, it expects revenues of between $66 million and $71 million, while under the previous rules the forecast would have been between $90 million and $95 million.
As we reported last month some licensing businesses have been cautioning shareholders about the impact of the change. Public IP companies’ (PIPCOs) share price often suffers because of the inherently lumpy nature of licensing revenue which can be skewed year-on-year by a large licensing agreement or if a deal fails to materialise. The new accounting rules will certainly not help ameliorate that.
For InterDigital however, Brezski insisted on yesterday’s call that despite the new rules management has not changed its “$500 million to $600 million target revenue platform for the business”.